While first-time borrowers of home cash loans are struggling to get an approval, banks seem to splurge on the very wealthy. According to a national director of a local bank, the reason for such action is because unlike first-time borrowers, the rich borrow cash loans just because they choose to so they are very strategic about it. This means that they know when, how and why they want to borrow.
Low Mortgage Encourages More Borrowers
The influx of applications for cash loans from the wealthy can be attributed to the low mortgage rates, which makes borrowing a better option than investing in the stock market. At present, loans ranging from $1 million to $10 million are highest in the metropolitan areas with more than 15,000 in the second quarter alone.
But the bank’s generosity is not the same for first-time borrowers who don’t have excellent credit scores to show. Just last June, for instance, a total of 28 per cent of home sales were made by new buyers as opposed to the 35 per cent recorded in October of 2008.
Sale of Luxury Homes Boost Confidence in Cash Loans
Jumbo cash loans, or those with of at least $417,000, are more than what government-controlled agency, Fannie Mae and Freddie Mac, is allowed to guarantee. Hence, these jumbo loans are generally given by banks to creditworthy borrowers.
Southern California stands as a witness to the demand of jumbo cash loans as millionaire borrowers repeatedly apply for loans in view of an improving economy. The resulting brisk sale of luxury homes gives borrowers yet another boost of confidence in the market.
According to statistics, this quarter has seen the biggest jump in the sale of homes costing $2 million and up since 2006. On other hand, the sale of homes costing at least $1 million has increased by 8.5 percent compared to the numbers in June 2013. This increase, according to the National Association of Realtors, is the biggest jump recorded in both price ranges.
Low Interest Rates Entice Borrowers to Borrow
The low interest rates are also fuelling the demand for home cash loans. Reports say that borrowers are being offered interest rates of as low as 3.5 per cent. However, there is a huge possibility that the rates could rise again in the next months. That is why a majority of borrowers of home cash loans would opt for the seven year but adjustable mortgage to come with the possible change in interest.
Other Assets Considered in Applications for Cash loans
Because of the popularity of jumbo cash loans, some lenders would even consider accepting applications from borrowers with fluctuating incomes as long as they have assets that are of value. These assets will be included in the criteria used to determine a borrower’s capacity to pay back the cash loans requested. The usual market of these lenders is borrowers who are self-employed.
Lenders Compete for Borrowers through a Special Discount Program
In order to entice the most number of borrowers, lenders would try to build long-term relationships with their wealthy clientele by offering special discounts. This is amid the forecast that cash loans for home acquisition will drop to $267 billion in just three months’ time, which would be the lowest in over 17 years.
Some examples of the special discount programs used to lure wealthy borrowers are:
• Half a point off the usual cost of the adjustable rate mortgage
• Immediate access to deals that aren’t advertised. A popular example would be the privilege to borrow using inherited investment assets as requirements for cash loans.
• The use of hybrid loans or cash loans that allow borrowers to use two mortgages. With hybrid loans, the overall blended rate is significantly lower compared to other deals with two mortgages.
The trend of luxury homes is expected to end soon and it is hoped that after it expires, first-time borrowers would be given the chance to apply for and get approval for cash loans. However, the fear is by the time that happens mortgage might already be off the roof.
In order to accommodate the market of first-time borrowers who are not necessarily looking for luxury homes, there remains to be lending institutions that can cater to your needs.